NEW DELHI: The FII ownership of small-cap stocks is likely to outpace that of large caps as economy recovers, CLSA said in a note.

Asia Pacific-focused broker CLSA is of the view that the ownership in large cap stocks is now well past the previous peak and stands at 22 per cent compared to that of small-cap stocks, which is languishing near all-time lows of 12 per cent.

The brokerage firm believes that the contrast trend has raised the chances of outperformance in some select small caps as the economic recovery sets in.

In the infrastructure space, CLSA believes that the select small caps that offer a good buying opportunity are in property stocks such as Sobha Developers and JP Infrastructure.

The strong $8.4bn FII inflow has driven the FII market (BSE 500) ownership by 120bps QoQ to 20.7 per cent in 2013. Considering a further US$7.6bn inflow YTD, the current estimated FII ownership stands at 21%+, an all-time high.

During the fourth quarter of calendar year 2012, FIIs have trimmed their overweight position in private banks and added consumer discretionary to their portfolio.

FIIs turning cautious

As against the recent trend witnessed by FIIs, which have already pumped in close to $7.7 billion-odd this year, $5 billion has been pumped into the secondary market.

Foreign investors, buyers of stocks and derivatives are turning cautious ahead of the Union Budget 2013.

According to experts, the cautious stance from FIIs comes from the fact that despite the government moving with reform measures, Indian markets have come off from their highs registered in January.

"Since mid-January, they have begun covering their cash market positions by raising bearish bets on the benchmark Nifty and have also been buying options giving them the right to sell the Nifty ahead of the Union Budget," ET reported.

"Data also reveals FIIs have accumulated 6.7 lakh put options on Nifty across various strikes, which gives them the right to sell the index in February," added the report.